OPEC ministers hold ground on production levels

Published: Tuesday, November 14, 2000

VIENNA, Austria (AP) - OPEC appointed a hawkish new leader Monday and dug in against further increases in oil production, lessening chances that heating oil and other energy prices will decline in the coming months. Ratifying an agreement hammered out Sunday, the 11-nation oil cartel credited itself for already boosting output four times this year, but said all new production plans were on hold.

''The market is getting perhaps a little saturated and there is a stock buildup which is likely to hit us in the face later in the new year,'' OPEC Secretary-General Rilwanu Lukman said, adding that the group will weigh possible production cuts early next year.

The news drove oil prices higher Monday. December futures of light, sweet crude closed up 45 cents at $34.47 a barrel on the New York Mercantile Exchange, while heating oil jumped .88 cent to $1.016 per gallon.

In London, futures of North Sea Brent crude rose 41 cents to $32.43 on the International Petroleum Exchange.

Despite prices reaching levels not seen in a decade, Lukman scoffed when asked if they were too high.

''Developed countries can afford these prices fairly comfortably,'' Lukman said. ''This level of price is not exorbitant, nor is it destroying the world economy.''

OPEC, which produces 40 percent of the world's oil, is scheduled to meet again Jan. 17 to reassess prices and production.

Although prices are currently soaring, OPEC fears they will bottom out next spring when demand for heating oil tails off.

To guide OPEC through what will likely be a contentious January meeting, the cartel appointed current OPEC President Ali Rodriguez as the group's new secretary-general starting Jan. 1.

Rodriguez, who is also Venezuela's oil minister, has already dismissed calls for another production increase this year, and is seen as a strong leader bent on making the cartel once again more cohesive and powerful.

Drollas said the appointment signals a shift to ''old-style OPEC,'' and Jareer Elass, an analyst with Oil Navigator in Washington, called Rodriguez a ''price hawk'' for his outspoken concerns about excess production and low prices.

In his opening comments Monday, Rodriguez blamed soaring oil prices on high gasoline taxes and a lack of refining facilities in developed countries - not on a shortage of oil.

In fact, Rodriguez said OPEC has done its bit by raising its official target production by 3.7 million barrels a day this year alone. Lukman backed that up saying supply of oil already outstrips demand by about 1.5 million barrels a day.

''It's very true. Tight stocks and tight fundamentals are a product issue, not a crude oil issue,'' said Raad Alkadiri, an oil analyst at the Washington-based Petroleum Finance Company.

Even if OPEC wanted to pump more oil, it may not even be possible because many member nations are already producing all they can.

Iran and Venezuela - OPEC's second- and third-biggest producers after Saudi Arabia - are having trouble meeting their targets, as are Indonesia and Nigeria.

''We are producing at our maximum capacity and, if the price goes to $50 per barrel, it's not our responsibility. What can we do?'' said Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah.

All told, the cartel produced about 29.5 million barrels a day in October, according to the Paris-based International Energy Agency. That's substantially higher that the group's official target output of 26.7 million barrels a day.

''I think they are stuck. They don't have options. They are using pressure of falling demand and refining restrictions as the reason why they cannot act aggressively now,'' Elass said.

By sitting on its hands, OPEC could soon run afoul of an informal agreement aimed at keeping prices between $22 and $28 a barrel.

Under the deal, OPEC members pledged to hike daily production by 500,000 barrels if average prices for the group of crudes they use as a benchmark remain above $28 for 20 consecutive days.

High prices triggered such an increase Nov. 1, but prices are still hovering above $30 - and likely to stay there long enough to suggest another output boost by the end of the month.

Lukman called the pricing scheme more of a guideline than a hard and fast rule, however.

''The price band is only a tool. It is not a panacea for the market,'' Lukman said. ''We have to apply it with a certain amount of discretion and intelligence.''